CHAPTER 14 MC- Sales and Cash Receipts

The auditor's objectives for the sales and cash collections activities when the client is primarily an e-commerce business as compared to a "brick and mortar" business are

unchanged.

Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this fraud and be least likely to be detected by an auditor?

understating the sales journal by not recording the sale

which audit procedure is most effective in testing credit sales for overstatement?

vouch a sample of recorded sales from the sales journal to the sales account GL

Which of the following is the appropriate point at which the auditor deems authorization to be critical? A) Credit granting Price authorization Shipment of goods

yes to all

Prenumbered documents are intended to help A) Prevent the failure to bill or record sales Prevent duplicate billings or recordings of sales

yes to both

The total of the individual account balances in the accounts receivable master file should equal the

balance of the accounts receivable account in the general ledger.

Who is generally responsible for opening receipts when a company uses a lockbox to speed the handling of cash receipts?

bank employees

The most difficult type of cash embezzlement for auditors to detect is when it occurs

before the cash is recorded in the cash receipts journal or other cash listing.

One type of shipping document is the ________, which is a written contract between the carrier and the seller of the receipt and shipment of goods.

bill of lading

Which of the following is an accurate statement relating to separation of duties?

All of the above are accurate statements.

Which one of the following best describes the auditors responsibilities regarding appropriate authorizations in the sales/collections cycle?

All of the above should be of concern to the auditor.

Which of the following test of controls is useful to test the completeness objective for cash receipts?

Observe endorsement of incoming checks.

The accounting system will not post a sales transaction to the sales journal without a valid bill of lading number. This control is most relevant to which transaction-related objective for sales

Occurence

Details of the journal are posted to Journal totals are posted to

The accounts receivable master file The general ledger

Which one of the following would the auditor consider to be an incompatible operation if the cashier receives remittances from the mail room?

The cashier posts the receipts to the accounts receivable subsidiary ledger cards.

Which of the following is a correct statement regarding the shipment of goods?

The shipping document is used to update the perpetual inventory records.

________ tests are for omitted transactions, while ________ tests are for nonexistent transactions.

Tracing; vouching

An audit procedure that compares the name, amount, and dates shown on remittance advices with cash receipts journal entries and with related duplicate deposit slips would be effective in detecting

lapping.

When an employee who is authorized to make customer entries in the accounts receivable subsidiary ledger purposefully enters cash received into the wrong customer's account that employee may be suspected of

lapping.

Some companies have customers send payments directly to an address maintained by a bank. This is called a(n) ________ system.

lockbox

Which one the following procedures performed for the billing function provides evidence for the completeness assertion?

making sure that all shipments have been billed

An auditor needs to determine whether all customers of an electric utility company are being billed. The auditor should test from the

meter department records to the sales register.

A document sent to each customer showing his or her beginning accounts receivable balance and the amount and date of each sale, cash payment received, any debit or credit memo issued, and the ending balance is the

monthly statement.

which of the following controls would be most effective in detecting a failure to record cash received from customers paying on their accounts

monthly statements are sent to customers and any discrepancies are resolved by someone independent of cash handling and accounting

In many audits of sales transactions substantive tests of transactions can be reduced in determining the completeness objective because

overstatements of assets and income are a greater concern than understatements.

When assessing risk control, the auditor must do all of the following except

perform the detailed test of balances.

a sales invoice for 5200 was computed correctly but by mistake was entered as a 2500 to the sales journal and posted to the AR master file. the customer remitted only 2500, the amount on his monthly statemetn

prelisting and predetermined totals are used to control posting

A ________ is a list prepared when cash is received by someone who has no responsibility for recording sales, accounts receivable, or cash, and who has no access to the accounting records.

prelisting of cash receipts.

Which of the following is a business function related to sales returns and allowances?

processing and recording credit memos

Which of the following is not a business function within the "Sales" class of transactions?

processing and recording sales returns and allowances

The accurate recording of sales transactions concerns all of the following except for

proper credit authorization.

The document that accompanies the customer's payment is the

remittance advice.

Smith Manufacturing Company's accounts receivable clerk has a friend who is also a customer of Smith Manufacturing. The accounts receivable clerk has issued fictitious credit memos to his friend for goods supposedly returned. The most effective procedure for preventing this activity is to

require receiving reports that provide evidence of returned inventory items to support all credit memorandums before they are approved.

The document used to indicate to the customer the amount of a sale and payment due date is the

sales invoice.

) To test for recorded sales for which there were no actual shipments, the auditor vouches from the

sales journal to the shipping documents.

A ________ is a document for communicating the description, quantity, and related information for goods ordered by a customer.

sales order

For a firm that practices good internal controls in the sales and collections cycle, the function of indicating credit approval should be recorded on which of the following documents?

sales order

an auditor wishes to test the completeness assertion for sales. which of the following audit tests would most likely accomplish this objective?

select a sample of shipments occurring during the year and trace each one to inclusion in the sales journal.

Which of the following would least concern an auditor regarding the lack of a specific authorization to conduct the sales transaction?

selling of goods for cash

tracing shipping docs to sales invoices provides evidence that

shipments to customers were properly invoiced

To determine whether IC relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices, an auditor would most likely select a sample of transactions from the population represented by the

shipping document file

An effective procedure to test for unfilled shipments is to trace from the

shipping documents to the sales journal.

which of the following procedures most likely represents an IC designed to reduct the risk of errors in the billing process?

comparing control totals for shipping docs with corresponding totals for sales invoices

In many audits, no substantive tests of transactions are made for the ________ assertion on the grounds that understatement of sales is not a concern.

completeness

When designing audit procedures, tracing of source documents to the customers subsidiary ledger and subsequently to the general ledger is done to satisfy what assertion?

completeness

The auditor traces items from the source documents to the journals in order to accumulate audit evidence that will satisfy the

completeness objective

Which one of the following statements is true? In deciding on substantive tests of transactions

some procedures are commonly employed on every audit regardless of the circumstances.

The most significant effect of the results of the tests of controls and substantive tests of transactions in the sales and collection cycle is on

the confirmation of accounts receivable.

What critical event must take place before goods can be shipped in order to assure payment can be reasonably expected?

credit approval

A ________ indicates a reduction in the amount due from a customer because of returned goods or an allowance.

credit memo

A ________ is a document that indicates a request for merchandise by a customer.

customer order

What event initiates a transaction in the sales and collection cycle?

customer request for goods or services

When dealing with the processing and recording of cash receipts,

the most important concern is the theft of cash.

an auditor is performing substantive tests of transaction for sales. one step is to trace a sample of debit entries from the AR master file back to the supporting duplicate sales invoices. what will the auditor intend to establish by this step?

debit entries in the AR master file are correctly supported by sales invoices

which of the following controls is most likely will be effective in offsetting the tendency of sales personnel to max sales volume at the expense of high bad debt write offs

employees involved in the credit-granting function are separated from the sales function

The auditor's primary concern in performing audit procedures of the write-off of uncollectible accounts relates to the risk that the client writes off customer accounts that have already been collected. The primary control for preventing this fraud is

examining the uncollectible account authorization form.

Which document or record is used in the write-off of uncollectible accounts classes of transactions?

general journal

Most companies recognize sales revenue when

goods are shipped.

In the accounts receivable master file, the length of time the account has been due can be useful to the client and the auditor in preparing the

aged accounts receivable trial balance.

Which of the following is not one of the five classes of transactions included in the sales and collection cycle?

interest income

To determine that sales are accurately recorded, the unit prices on the duplicate sales invoices are normally compared with

an approved master price list.

Before goods are shipped on account, a properly authorized person must

approve the customer's credit.

shipments occuring 12/2016 did not get recorded until the first few days of jan 2017

as goods leave the shipping dock, the system generates a bill of lading and associate sales invoice, which is automatically recorded in the sales journal

When assessing planned control risk for sales,

assessing control risk for sales is a highly subjective decision.

When designing tests of controls and substantive tests of transactions for cash receipts, it is important to remember that

auditors use the same methodology for designing tests of controls and substantive tests of transactions for cash receipts as they use for sales.

Prenumbered documents will only be useful for control purposes if

the sequence is accounted for periodically.

Which of the following is not an important aspect of billing?

Credit is approved to customers for sales on account.

Which of the following is not a key control for sales and cash receipts?

active board of directors

Which of the following is an account that is not affected by the sales and collection cycle?

accounts payable

Which accounts are involved in the sales class of transactions?

accounts receivable and sales

When sales invoices are automatically calculated and posted by a computer, the auditor may be able to reduce substantive tests of transactions for which, if any, assertion?

accuracy

the accounting system automatically obtains the unit price based on scars of bar codes for merchandise sold. This control is most relevant to which transaction related objective for sales

accuracy